Chapter 12, Problem 4DYS

Tana Thorne works in a public accoungting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet's financial statements. In discussing the audit fee, Allnet's management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne's firm. 1. Identify the parties potentially affected by this audit and the fee plan proposed. 2. What are the ethical factors in this situation? Explain 3. Would you recommend that Thorne accept this audit fee arrangement? Why or why not? 4. Describe some ethical considerations guiding your recommendation.

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will bewhether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August.(b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. The year-end for the company is 30 June and the audit report is due to be signed on 20…

Assume that after completion of all fieldwork on the audit of Andler Company, but prior to issuance of the audit report, the senior on the engagement informed the engagement partner that he just discovered that his wife has an immaterial investment in Andler Company stock. Which of the following is most accurate as to AICPA Code of Professional Conduct requirements?   Multiple Choice   The CPA firm must resign the engagement.   No action is necessary since he was unaware of his wife’s investment while performing the audit.   The CPA firm should evaluate the significance of the breach on the engagement team’s integrity, objectivity and professional skepticism and ability to issue an audit report and then take proper action.   The senior’s performance on the audit should be reviewed by the engagement partner to determine that the work performance was acceptable.

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August.  (c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August.(b) The share issue is to fund the purchase of a 60 percent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August.(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August.(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…

Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows. (a) The board is planning to issue shares in a private placement on 15 August. (: another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (? lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiar y company's…

Dave and Charlie are sitting at lunch one day on the premises of one of their large audit clients when the topic of going concern comes up. Dave mentions to Charlie that he vaguely recalls hearing this term in his accounting classes back in college, but doesn't remember what this means or why it is part of the audit. Which of the following responses by Charlie would help Dave to understand this? (Select all that apply.) Going concern deals with the entity's ability to continue operating as an enterprise, and is an important assumption that the auditor should evaluate. The going concern assumption is required to be evaluated by management each year for the forthcoming year. The going concern assumption is tested by evaluating management's breach of loan and debt covenants over the past three years. Going concern really speaks to the client firm's ability to pay its short-term liabilities when they come due, and whether the firm will need to refinance maturing loans to conserve cash.

During a recent discussion with the top management of GreenTree Company, a large publicly-traded entity, the external auditors, Wood's CPA firm has been apprised that the management of GreenTree may have knowingly allowed misstatements in the firm's most recent financial statements to be published. GreenTree's management are inquiring of the auditor as to management's potential liability in such a situation. The best response to this question by the external auditor would be which of the following?